FERNDALE - The bursting of the housing bubble five years ago still echoes in places such as Bellingham, where home construction hasn't rebounded anywhere near where it was before the recession.

Ferndale is the exception. Building permits for single-family homes in 2012 exceeded those of any previous year, including the peak of the housing boom, Community Development Director Jori Burnett said.

In 2007, Bellingham approved 31/2 times the number of home building permits issued in Ferndale. That should have been expected because Bellingham's population is seven times greater.

A few years later the situation has reversed. In 2012, as of Monday morning, Dec. 31, Ferndale had issued 115 permits for houses, compared to 93 in Bellingham. Ferndale issued 89 home permits in 2011, while Bellingham had 73.

In both cities, the trend has been positive since their building markets bottomed out in 2009 or 2010. Housing prices have stabilized, and the inventory of homes for sale is declining, local real estate agents have said.

"It's obviously been a slow recovery," said Jeff Thomas, Bellingham's Planning and Community Development director. Data from the city's permit center shows "the slow but progressive trend upwards we're in at the moment."

More than the modest market forces appear to be at play in Ferndale, according to Burnett and a residential developer.

What sets Ferndale apart, according to Burnett, is possibly a perception of lower land prices but also some development incentives.

There are upwards of a dozen permit fees to pay when building a house, the most expensive generally being water and sewer hookup fees. Together, those connection fees cost more than $11,000 in both Ferndale and Bellingham. Developer Scott Hillius of Hillco Contracting, Inc., said it can cost $25,000 just for permits for a new house in Bellingham.

Hillius plans to build a subdivision with 100 or more homes a convenient distance from Ferndale's downtown. He lobbied for, and the City Council approved, a 50 percent discount for water and sewer connections for houses near the city center. If 100 homes get built in Hillius' subdivision, he will save $625,000 on connection fees, assuming 2013 fee rates.

Ferndale also allows developers to delay paying connection and impact fees, except the school impact fee, until the builder requests a final inspection. Typically, these fees are owed upon receipt of the building permit.

The deferment helps, Burnett said, because developers are borrowing money to start their projects. Without the deferment, they would be paying interest on loans well before they saw any return on their investments.

Hillius gives Ferndale officials credit for drawing him there.

"The city of Ferndale is taking great strides to work with developers ... to get the economy going in the city, and I haven't seen the same thing from the city of Bellingham," he said.

"I'm not even looking that way. I'm not looking at the city of Bellingham right now," Hillius added.

Some developers are looking at Bellingham, and the city has created incentives officials believe are feasible, Thomas said.

In the past month, the City Council approved three or four new subdivisions that had been on hold through the recession. Building permit applications already have been filed for one of the projects, with 12 lots, Thomas said.

Movement by developers on these long-shelved plans is "a good sign" housing is continuing to pick up in Bellingham, Thomas said.

The city has not raised the building permit fee for the past five years, Thomas said - a policy held by former Mayor Dan Pike and Mayor Kelli Linville to encourage growth in the city.

Traffic impact fees were reduced in "urban village" areas, including the downtown, Thomas said. Ferndale also reduced traffic impact fees downtown.

Bellingham won't defer fee payments because of legal advice that deferments carry a risk. City attorneys were concerned that through ownership changes or other complications, the city in some cases wouldn't be able to collect the deferred payments, Thomas said.

In Ferndale, the development renaissance carries over, although less dramatically, to apartment buildings and remodels of existing commercial buildings.

More permits for tenant improvements were issued in 2012 than in any of the previous five years, according to Ferndale data. Earlier data wasn't immediately available, but Burnett believed the business outlook downtown is better than it's been in decades.

Burnett doesn't remember downtown occupancy rates being as high as they are now since the mid-1980s.

"There are very few vacancies downtown," he said. "Hopefully in 2013, we start to see new buildings downtown."

Reach RALPH SCHWARTZ at ralph.schwartz@bellinghamherald.com or call 360-715-2289. Read the Politics Blog at blogs.bellinghamherald.com/politics.